The US President’s attempts to scrap the tax break on inheritance does not have enough support in the lower chamber, according to the top House Democrat who oversees tax policy, Bloomberg News Wire reports this week.
The planned overhaul of the tax system on inherited assets is unlikely to be included in the $3.5 trillion economic package as a result. To get the go ahead, the measure would need 218 votes to give it a majority in the House.
House Ways and Means Chairman Richard Neal told reporters that plenty of senators had raised questions about the issue. President Joe Biden wants to end the tax break called the “step-up in basis” which eradicates the capital gains tax on assets when the owner dies. The proposal had already been facing opposition even before the House committee left this provision out of the draft tax legislation that was released on Monday.
Attempts to equalise employment and investment income
President Biden had planned a broader effort to overhaul capital gains taxes in a bid to equalise the treatment of employment income with investment income, with a top capital gains rate of 39.6 percent before a surtax on those earning the most.
Instead, the House Committee has proposed raising the long-term capital gains figure from 20 percent to 25 percent. The House’s democratic leadership is still able to insert changes once the committee passes its draft and before the legislation is put to the entire chamber for voting.
But Senator Neal’s exclusion from his committee’s proposal suggests that it is highly unlikely the proposal to ditch the step-up in basis measure will go ahead.
OECD report on inheritance taxation
In May this year, the Organisation for Economic Co-operation and Development (OECD) published its report on inheritance taxation in OECD countries, which includes US and the UK. The report explored the role inheritance, estate and gift taxes could play in raising revenues, addressing inequalities and improving efficiency in the future.
The report said inheritance taxes could play “a particularly important role in the current context. Wealth inequality has been persistently high and has increased in some countries over recent decades. Inheritances are also unequally distributed across households, with wealthier households reporting more and higher-value inheritances. In the future, inheritances are expected to grow in value if trends in asset prices continue, and in number as the baby-boom generation ages.”
The report’s authors added that as a result of longer life expectation, wealth concentration among older people was expected to increase, a trend that would further reinforce inequality.
Compared to seven other countries (including the UK, Germany, Belgium and Japan), the US has the smallest share of estates that are subject to inheritance or estate taxes, with Belgium having the greatest proportion.
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